Western investors look east to emerging markets

Excesses in developed economies will lag on financial recovery, but emerging economies in Mid East & Asia should still offer sound ROI says expert at Cityscape

Excesses in the mature markets will stifle economic growth and therefore real estate values, pointing investors towards the emerging markets in the Middle East, South East Asia and Asia Pacific, according to real estate expert Ethan Penner, who delivered the keynote at Cityscape Global.

US-based Penner, President of CBRE Capital Partners and Executive Managing Director, CBRE Investors, opened day two of the Cityscape Global Real Estate Investment and Development conference, delivering a keynote interview on ‘The New Paradigm for Global Finance, the Roles of Banks, the Capital Markets, and Regulators.’

“Many investors believe that real estate as asset class offers diversification away from stocks and bonds and that in my opinion is a mistake. Commercial real estate is completely and perfectly correlated one-to-one to the broader economy. The macro economic climate and the health of the financial system are the two driving forces that dominate real estate value,” commented Penner.

Penner went on to say that real estate professionals could not and do not create tenants out of thin air, only a growing economy could generate sustainable demand for space. To get ahead of the herd, an investor should understand and anticipate macro-economic change.

“Real estate, more than any other asset class is dependent on debt. It would be unheard of for a corporation to have 60-80% of its capital structure in debt, even 40% debt would be considered high risk. In real estate however this is commonplace, the average is 70% and frequently it can exceed 80% or even 90%, so when the debt capital markets catch a cold, real estate is invariably in trouble.”

Penner’s forecast for growth in the developed economies was equally sobering, “The best case scenario would be average growth of up to 1%, reminiscent of the way the Japanese economy has performed over the last twenty years,” he said.

“Moreover, Penner’s assessment of the developed and emerging real estate landscape is similar to that of US investment guru, Tom J Barrack Jr, who was a keynote speaker at the Cityscape Global Real Estate Investment conference yesterday, who claimed that the smart money was now focusing on emerging markets, which were outperforming the more mature markets in US and Europe,” said Chris Speller, Group Director, Cityscape Global.

“Naturally with emerging markets unhindered by unsustainable levels of debt and with healthy growing economies, the future of real estate looks bright. The obvious danger is that these markets once again become overheated, but Asian economies have learnt from previous economic crises, authorities are putting regulation in place to avoid future property bubbles,” added Speller.

The Cityscape Global conference which is taking place at the Dubai World Trade Centre, has attracted some of the leading minds throughout the international and regional real estate industry. Experts such as, Tim Fox, Chief Economist, Emirates NBD, Gurgit Singh, COO of Sorouh and Phillipe Baretaud, Develop Director Middle East at Accor Hospitality. Presentations were given on Islamic financing products, joint venture structures for frontier and emerging markets as well as forecasts for the regional economic outlook.

The flagship event of the world’s largest business-to-business real estate investment and development brand is being held in Dubai for the ninth year and has evolved from Cityscape Dubai as a result of the increased international participation it has attracted.
This year the event has attracted over 180 exhibitors with participants from more than a 100 different countries and 30,000 visitors are expected during the four-day show.

For more information about Cityscape Global, please visit www.cityscapeglobal.com.